Alarm bells are ringing in the corporate-bond markets. The gap between yields on investment-grade company debt and government bonds has widened so much that it is potentially signaling a recession; ratings downgrades are piling up. But while the direction of travel in spreads is worrying, the destination isn’t yet clear.

For a start, some of the signals are conflicting. In the U.S., the spread between long-dated corporate bonds rated in the Baa category by
Moody’s
and Treasurys, at 3.4 percentage points, is at a level that has historically signaled a coming recession, BlueBay Asset Management noted in January. Indeed, based on monthly data since 1970, this spread has only been wider for 7.6% of the time.

But the yield on these bonds—of around 5.5%—is actually at the low end of the range, and has only been lower for 9% of the time since 1970. That is because monetary policy and hence underlying bond yields are still in extraordinary territory. Indeed, the Treasury yield curve only implies a 5% probability of recession over the next 12 months, BlueBay estimates.

The situation is even more marked in Europe. The spread on
Barclays
’ index of euro-denominated investment-grade corporate bonds has risen above 1.5 percentage points—doubling since early 2015—a level that also looks like it might signal trouble. But because underlying government bond yields in the eurozone are negative, the index sports a yield of just 1.39%. That hardly suggests many companies are going to find funding costs a barrier to investment, or struggle with interest payments, one way in which financial-market turmoil can feed back into the real economy.

Moreover, the makeup of spreads in the postcrisis world may be more nuanced. Liquidity is a scarcer commodity with big banks pulling back from trading; by contrast, the apparent presence of plentiful liquidity precrisis may have made spreads artificially tight. The average corporate bond rating has tended to fall over time, implying a wider spread for the market as a whole. And some of the widening is due to the turmoil in commodities hitting energy and metals-and-mining companies, which clearly face trouble; other sectors are faring better.

Low yields may hold their own dangers for investors too, however. The outlook for future returns—particularly in Europe—is poor. Volatility has risen, and there are a growing number of companies with problems that can’t be swept under the carpet.

The thin cushion provided by low yields makes these credit blowups particularly painful. For investors, the fear of missing out on a 0.1-percentage-point tightening in aggregate spreads may be being trumped by the fear of being hit by a 1-percentage-point widening in a single borrower’s bonds,
Citigroup
’s credit strategists recently suggested. That can have a corrosive effect on confidence.

It is very likely that the investment-grade corporate bond market’s best days in this cycle now lie in the past. But distortions caused by central-bank policies and post-financial-crisis regulation could be muddling signals from the market. Past rules of thumb may not be a good guide to the future.